Law and business of the Hollywood unions & guilds, digital media, entertainment and technology.
From entertainment/technology attorney Jonathan Handel, Of Counsel at TroyGould in Los Angeles and Contributing Editor at the Hollywood Reporter.

Thursday, January 31, 2008

I'm presenting an investor conference call tomorrow on the strike at 11:00 a.m. PST / 2:00 p.m. EST. Email me your contact info and affiliation if you'd like to dial in and learn more about the current state of affairs and prospects for settlement: jhandel at att dot net.

Sunday, January 27, 2008

As the Sundance Film Festival draws to a close, a film review seems in order. The film is “Secrecy,” a documentary about U.S. government secrecy – specifically, the use of classification to hide mistakes and embarrassing truths from the citizenry. Although the film is important, it suffers from [two sentences deleted].

As a key example of abusive government secrecy, the film focuses on an incident that occurred in [date deleted], just after World War II. In that incident, nine men died in the crash of an [aircraft model deleted], on which several of them were conducting a classified experiment.

The government refused to release the accident report to the widows, citing national security. The case went to the Supreme Court, which supported the government, establishing the “state secrets” privilege against disclosure of national security information in litigation. Under this doctrine, courts generally accept the government’s assertion that information is sensitive; the judge rarely conducts even a confidential review to determine the accuracy or truthfulness of the government’s claim.

So, the case was a major victory for government secrecy, and a blow to openness and democracy. But, as the film demonstrates, it was all based on a fraud. Fifty years after the aircraft crash, the accident report and other documents were released under the Freedom of Information Act, and they disclosed a shocking – yet unsurprising – truth: the crash had nothing to do with the classified experiment.

Indeed, the experiment was mentioned only once, in passing, with no discussion of its nature. Rather, the report cited a litany of component and maintenance failures as the cause of the crash. The film includes interviews of survivors of the men who perished, and their pain and sense of betrayal are moving.

It’s a strong, and disturbing, example of government misconduct. The film also includes examples of more recent secrecy abuses, relating to Guantanamo and to torture generally. Yet, those examples seem less compelling than the fifty year old aircraft crash example. The human dimension of the more recent cases is unexplored, and the examples cited seem less egregious.

Similarly, the film alludes only briefly to the abuses at Abu Ghraib, and doesn’t explore the way in which government secrecy nearly suppressed the entire sorry culture of that prison. Nor does the film mention an incident – perhaps too recent for inclusion – in which a defense lawyer filing a brief in the [court name deleted] was forced to write his brief in an empty office provided by the prosecutor, without access to law books or his own notes, or even to the government’s brief to which he was nominally responding. Astonishingly, the defense lawyer was then denied a copy of his own brief. This egregious set of conditions imposed by the U.S. Attorney is apparently without precedent in the U.S. At least, one hopes so.

Visually, “Secrecy” is mostly composed of talking heads – including two government agents who are quite creepy – with the interesting twist that the interviewees’ names are often not displayed for quite some time into the interview. Presumably, the intent of the filmmakers – two Harvard professors – is to disorient the audience, and they are successful.

More cinematic are a series of woodcut-like animations that appear from time to time while interviewees are speaking. These morph in surreal ways that reminded me of “Destino,” a short animated film created by Dali and Walt Disney. That film, nominated for an Academy Award, was first storyboarded in 1945, but not completed until 2003, [number deleted] years later. It was on display at an exhibit at the LA County Museum of Art that closed earlier this month, but will reportedly be released on DVD later this year.

All in all, “Secrecy” is not a bad film, but it does fall short. It deserves a release, on television at least; a lack of distribution would be the ultimate irony. I wish I could tell you now about the other films I saw at Sundance … but those reviews may have to wait another fifty years. This article first appeared on the Huffington Post on January 27, 2008.

Wednesday, January 23, 2008

As I predicted 2-1/2 months ago, before the strike began, the WGA has dropped its demands for reality and animation jurisdiction. That's a very encouraging, positive move. Hopefully, the studios too will see the world in a new light, and be open to some modification of the DGA deal (see The Directors Deal – Fair or Feasible?) and we can have a deal by Oscar day.

Tuesday, January 22, 2008

Eventually the studios and the WGA will make a deal. Will SAG accept the WGA deal as a template (assuming it doesn't accept the DGA deal as a template)? The conventional wisdom is yes, but the question's still worth asking.

Also, there's at least one issue that's important to SAG, but not to the WGA or DGA: forced endorsements. These are products placements taken to the next level: instead of just seeing a can of Coke in the scene, we see the actor comment on it ("what a great Coke that was") and/or handle it (i.e., drink it).

These practices are considered forced endorsements because the actor is required by the script to in effect endorse the product. That means he or she can't realistically do a commercial for a competitor, such as Pepsi. Nor is Coke as likely to hire him to do a commercial why bother, since he just did one for free, as part of the program (which means that the audience is much less likely to skip it than an actual commercial).

So, SAG wants additional payments for forced endorsements. By contrast, the WGA's only looking for consultation between the producer and writer when a forced endorsement in written into a script; it dropped earlier demands for additional compensation.

SAG and the WGA are probably collaborating pretty closely behind the scenes on their evaluation of the DGA deal. I can't imagine forced endorsements would be a dealbreaker.

HBO begins testing a new broadband content offering today in a selection of Time Warner Cable systems in Milwaukee and Green Bay, Wisconsin. HBO on Broadband, viewable only on PCs by HBO TWC subscribers, will offer access to some 600 episodes (400 at any one time) of HBO originals per month for no additional charge, including The Wire, Sex and the City and The Sopranos. ...[N]o details on whether or not the service would eventually be offered nationally.

Unclear if this is streaming or download, and what residuals formula will be used.

Friday, January 18, 2008

The Directors Guild has reached agreement with the studios. Should the Writers Guild accept the same deal ... or try to negotiate better terms, and possibly continue the strike for months? Is the deal fair, or merely feasible, i.e., the best the DGA thought it could get? What's the tradeoff between fair and feasible, and what should the WGA do next?

Let's take a closer look.

Residuals for paid downloads (Electronic Sell-Through)

On paid downloads such as iTunes purchases, the studios gave the directors about twice what they offered the writers. That sounds extravagant, but it's not: the existing number - which was the same as the formula used for home video -- was unreasonably low, considering that there's no manufacturing cost for digital downloads (unlike DVDs and video tapes).

The writers wanted about 8 times as much as the studios offered, so, the studios didn't even meet the writers half-way. Also, the increase only kicks in above certain sales volumes (and the formulas differ slightly between movies and TV programs). Still, an increase is still better than a sharp poke in the eye.

Residuals for ad-supported streaming

This is where it gets ugly. If a network provides a show via streaming on the Internet or cell phones, with ads but with no charge to the user/viewer, the residual payment to the director would be a flat fee of about $1,200 for the entire first year of streaming. (That figure is for a one-hour program; other figures apply for half-hours or for movies; and also, there's a short initial "free period" where no residual is payable.) The network and/or the studio might make a lot of money on advertising, but the residual would still be a flat figure. A fairer approach would link the figure to either advertising revenue or viewership (number of hits).

There's another twist: what happens if or when television itself is delivered via Internet technology (so-called IP-TV)? The studios might then argue that the low flat-rate figure applies, rather than the current, more talent-friendly television residual formulas. The current definition of "Internet" in the Guild agreements is vague enough that this is a real concern. It should be tightened.

Residuals for electronic rentals

Several days ago, Apple announced that movies and, I believe, TV shows, would be available for rental on iTunes - a new wrinkle, since most content on iTunes is sold, not rented. The DGA press release on the new deal does not discuss rentals, but an email being circulated by a prominent writer claims that the DGA deal includes a provision reconfirming a 2001 Internet Sideletter that provides a 1.2% residual for such usages. If so, that's good news.

Jurisdiction over new media

When, or if, more programming is produced for new media in the first place, the guilds want it to be done using their members. The studios offered the writers jurisdiction over derivative works - i.e., Internet and cell phone programming based on existing TV shows (or movies, presumably). The DGA deal achieves that, but also attains jurisdiction over new works created for the Internet, as long as the production budget for the new work exceeds certain thresholds. The thresholds are a bit higher than one might like, but still, this is a clear win.

Sunset provision

The deal expires in three years, which is always the case with the entertainment guild agreements - they're always three years. But this time, there is apparently some kind of "sunset language" emphasizing the point that the parties can reconsider everything afresh in three years, as technology changes. Perhaps, goes the theory, the directors (or writers) could obtain increases in the next negotiating cycle.

I think that's an empty promise. Are people really going to sit in a room and reargue the issues from square one, as though this year's deal had never been made? Of course not. The deal that gets done today will be the precedent for tomorrow, just as the home video deal, crafted at the dawn of the videocassette age, has lived on more than two decades, into the realm of DVDs and its hi-def successors, such as Blu-ray.

Transparency

The DGA press release says the new deal gives the guild better access to studio "deals and data," and also gives the guild improved provisions for challenging transactions between two divisions of the same company (these intra-company, self-dealing transactions are problematic because they can be artificially manipulated by the studios in order to reduce the amount of residuals due).

The press release isn't specific about the details, but these new or enhanced provisions can be critical to enforcing the guild agreement. Sounds like a clear win.

Also, the various residual percentages for new media are based on distributors gross rather than producers gross. This technical sounding point gives the directors a cut of a bigger pot of money, and one that is somewhat less subject to Hollywood-style accounting (i.e., manipulation). That's a significant concession from the studios - it's something the writers wanted, and it's one reason the studios walked out of talks last month.

Other terms

The new deal increases wages and residuals by amounts that are consistent with past practice (3% annual increase in minimums, for instance). There are also a variety of provisions with no direct analog in the writers agreement, just as the writers have some issues on the table that are specific to them.

What next?

The studios have said they're willing to resume discussions with the writers, initially on an informal basis. The writers should accept the invitation. What they need to do is quite simple: press for some improvement in the deal and hold the Oscars hostage. By negotiating down to the wire, they may achieve a few small improvements in the deal, which the studios would then offer the directors as well, of course.

The other option is to continue the strike, and hope that SAG will walk out too. But that's five long months from now. No one has the stomach for that, and the collateral damage is too great. Besides, flawed though it is, the DGA deal doesn't warrant five more months on the picket lines.

The DGA would never have achieved the gains in the new deal were it not for the pressure of the writers strike. The writers have an opportunity to tune up that deal just a little bit, but that's about all. Let's hope that next month, there'll be a new Academy Award category, and that the Oscar for best guild agreement will be awarded jointly to the WGA and DGA.

Wednesday, January 16, 2008

Several years ago, the Sundance film festival established an Industry Office to assist film industry attendees at the fest, many of whom are buyers scouting for films to acquire. That was an apparently reluctant acknowledgment of what everyone already knew: the festival had become a marketplace as well, and a frenzied one at that. Companies routinely overpaid for movies that later flopped.

Well, get ready for hyperinflation. This year, the studios - or, more precisely, their specialty "arthouse" units - have an additional motivation to buy films: the writers strike. If that strike continues for another few months, which is quite possible, the studios will have nothing new to put in their pipelines. That means nothing to exhibit, nothing to release on DVD, and no profits to offset the cost of all those idle employees (at least, the ones who don't get fired).

That would take the strike to a whole new level, and the prospect of those shortfalls would lead to massive layoffs and finally start driving the parent conglomerates' share prices down. So - expect a lot of motivated buyers at the festival. That's good for indy filmmakers, but not so good for writers - or, ultimately, for the studios, when many of those same movies underperform next year.

BTW, if you're going to Sundance, I'm doing a presentation on the strike: Monday, January 21, 2008, 11:00 am, at Queer Lounge, 608 Main Street (base of Main St.).

The Directors Guild has been negotiating with the studios and networks for the last several days. If they want to end the writers strike - and put the industry back to work - they should do a deal on new media that the writers and actors will accept too. See my LA Times Op-Ed piece for more.

I'm not taking a position on this one; I'm not a Guild member and don't feel comfortable getting between a member and his union. But I will say this: if a large group of members opted to go fi-core, it would weaken the Guild.

So, I hope if an organized group forms to do this, that they'll go to the Guild leadership first and try to exercise their leverage (regarding negotiating tactics), before taking this drastic step.

Monday, January 7, 2008

Idle hands are the devil's playthings, and writer's hands are no exception. That's why some of them have occupied their time on the Internet, creating short films about the strike, and, in some cases, seeking deals to make Internet content for pay. If this trickle becomes a flood, it could herald a sea change for the industry, as Thom Taylor argues in an LA Times Op-Ed. (Water metaphors are on my mind after the torrential weekend rains here)

But there's an irony that may escaped notice - writers are claiming their digital destiny at the cost of their core focus: they're becoming directors and producers as well. Now, that's not unusual; it seems like everyone's mixing in each other's business today. Apple was a computer company; now they're also a music distributor. Microsoft was a software company; now they're gamers as well. Google was a search company; today they're a video network (by virtue of owning YouTube) and a lot of other things. On an individual level, print reporters now make Internet videos as well, and all sorts of people are bloggers (even attorneys).

Yet, it's a big change for many writers, who are often not managerial or entrepreneurial, unless they're already hyphenates: writer-producers (such as television showrunners) or writer-directors (about 10% of the Writers Guild), for instance. There are even a few writer-actors, such as Matt Damon and Ben Affleck - indeed, the latter's now a triple-hyphenate, as he's now a director as well (Gone Baby Gone).

Still the irony remains: the strike, in part, is about claiming respect, and fair compensation, for writers as writers - but to attain that respect writers may have to do something other than write. It's a sad world that way, or an exciting one, or maybe both.

Jay Leno’s writing his own monologues, even though he’s a WGA member.The WGA says that that violates the strike rules.NBC, Jay’s network, says the strike rules as applied contradict the Guild agreement with the studios and networks, and that the rules are therefore invalid.

Who’s right?My analysis suggests that the Guild is, though the law is complex and not free from doubt – and it’s not clear that the Guild should do anything about it even if it’s right.Here’s the scoop.

The Strike Rules

The strike rules say that WGA members can’t perform writing services for struck companies.See Strike Rule 1.Leno is writing, he’s a WGA member, and NBC is a struck company.Therefore, it seems, he’s violating the rules – if the rules are valid.

The Guild Agreement

But are those rules valid?That’s where it gets tricky.

The Guild agreement says that writing one’s own monologue is not covered by the Guild Agreement.See App. A, Art. 1.A.5.d, p. 413.The WGA says this exception only applies to non-WGA members, thus giving Jay no shelter, since he’s a Guild member.However, the plain language of the exception does not contain this carveout; the language says it applies to a “person,” not a “non-Guild member.”

So, the WGA’s interpretation appears wrong, unless they can show evidence to the contrary, such as bargaining history (discussions during past negotiations, for instance).I asked the Guild to explain their position; they said they’d do so, but they didn’t, despite multiple emails, a phone call and a page to the Guild spokesman.

The Rule Against Unilateral Changes

What this means is that the strike rules do appear to contradict the Guild agreement.So is NBC right?Not necessarily.Remember, the agreement expired Oct. 31.In the business world, an expired agreement is generally a dead letter, unless it specifies that certain provisions survive expiration (such as confidentiality language).

However, in collective bargaining, expired union agreements still have force.This is because both the union and management have a legally-imposed obligation to bargain in good faith.See 29 U.S.C. sec. 8(a)(5), (b)(3).Thus, they shouldn’t unilaterally change provisions of the union agreement even after expiration; they should discuss the matter, i.e., bargain in good faith.The leading case on this issue is NLRB v. Katz, 369 U.S. 736 (1962).(NBC supplied me with a list of others, as well.)

But – the obligation to bargain in good faith only applies to so-called mandatory subjects of bargaining, which means wages, hours and other terms and conditions of employment.See 29 U.S.C. sec. 8(d).Therefore, the prohibition against unilateral modification of the union agreement generally only applies to mandatory subjects, because the prohibition in based on the obligation to bargain, and the obligation is limited to mandatory subjects.See 1 John E. Higgins, Jr., The Developing Labor Law, sec. 13.II.A, at 773-75 (2006).

And, the issue of writing one’s own monologues does not seem to be a mandatory subject, although there may be some doubt here.Cf. 2 Peter Lareau, Nat’l Labor Relns. Act: Law and Prac., sec. 13.04[3], pp. 13-62.2 et sq. (2007).But, in any case, the rule against unilateral changes applies only where the change is “material, substantial and significant.”See Lareau, v. 2, sec. 12.02[2], p. 12-8 at n.17.1.This certainly doesn’t seem to apply to writing one’s own monologues, as contrasted with the broad scope of the Guild agreement (indeed, the whole subject of late-night shows is shoved in an Appendix at the back of the Guild agreement).

In any case, NBC disagrees, and says that the prohibition against unilateral changes applies to permissive (non-mandatory) subjects as well as mandatory ones.However, conspicuously, they wouldn’t explain why or offer cases on point.Now, one of the cases they cited to me on another issue does, arguably, support their position; it prohibits unilateral changes based on agreement of the parties, and doesn’t discuss the permissive nature of the matter that was changed.SeeCommunications Workers Local 1170 (Rochester Telephone), 194 NLRB 872, 875 (1972),enf’d, 474 F.2d 778 (2d Cir. 1972).Also, I found at least one other case that does enforce a non-mandatory provision, but this was done because it was a provision that seemed specifically intended to survive expiration of the agreement.SeeUAW v. Yard-Man, 716F.2d 1476, 1482 6th Cir. 1983); 1 Higgins, sec. 13.II.A, at 775 n.75.

Most cases, though - including cases more recent than Rochester Telephone – appear to limit the prohibition to mandatory subjects.See 1 Higgins, sec. 13.II.A, at 773-75 (citing cases).If this is the rule – which is not a certainty - it means that the Guild can impose strike rules that contradict the Guild agreement.And that means that Leno is prohibited from writing his own monologues.

In summary, the strike rules probably contradict the Guild agreement, but the Guild appears to have the right to unilaterally change the expired agreement in this way, since writing one’s own monologue does not seem to be a mandatory subject or specifically intended to survive expiration of the agreement, and is a minor matter in the context of the agreement as a whole.

Should the Guild Impose Discipline on Leno?

For violating the strike rules (if such is the conclusion), the Guild can, apparently, fine Leno or even expel him from the union.The latter would be ridiculous.Even fining him seems ill-advised, because the violation is minor and unusual (writing jokes to be delivered by oneself is pretty specialized).

Also, Leno’s a supporter of the strike, and his first monologue was even a criticism of the companies and in support of the Guild.In addition, he went above and beyond the call of duty by paying the salaries of his non-writing staff while the show was off the air, a move the Guild applauded.

On the other hand, Leno does appear to be violating the rules, and it’s hard to set one standard for him and another, higher standard for everybody else.Still, does the Guild really want the PR backlash, especially in the face of the unclear nature of the law?It’s a hard call.

Disclaimer

I’m not a labor lawyer, and this article is based on about 12 hours of solo research, not the weeks of multi-lawyer research by labor lawyers necessary to produce a fully fleshed-out legal brief (which could run to 25-35 pages or more).In any case, this article is for informational purposes only, and is not intended as legal advice; if you need to know the answers, to the extent determinable, hire a labor lawyer.Also, this article expresses my own opinion, not that of the law firm with which I’m affiliated or its clients.

Thursday, January 3, 2008

A friend asked an interesting question: Will Lionsgate make an interim deal with the WGA, a la David Letterman’s Worldwide Pants? The Letterman deal, signed just days ago, was reportedly on the terms the Guild has been demanding – and that the major studios rejected as economically unreasonable.

Such a deal – or perhaps one with The Weinstein Company (TWC) - would be a natural way for the Guild to take the pressure of interim deals to the next level. This time, the majors would be looking not at a tiny company in a specialized corner of the business, but at a mini-major - a true competitor, ready to make films and television programming with the best writers in the business. It’d be the difference between a cat at the door and, well, a lion at the gate.

Will this happen? I don’t know. But – when I asked a WGA spokesman whether the Guild had discussed the matter, or was in talks with Lionsgate or TWC (or planned any), his response spoke volumes: “I can neither confirm nor deny.” He then added a smiley face.

[Update - Since this article was published, the WGA has reportedly done such a deal with United Artists. Perhaps Lionsgate or TWC will be next.]